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Navigating the rise in National Minimum Wage for your clients

4th Apr 2024
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Bright was created in 2021 when Thesaurus Software Ltd. and Relate Software Ltd. decided to join...
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With the cost of living and doing business a concern for everyone, the recent hike in the National Living Wage (NLW) and National Minimum Wage (NMW) present both challenges and opportunities.  

While a positive step towards improving worker income, employers need to strategise to absorb the increase in labour costs. As an accountant, you play a pivotal role in helping your clients navigate this change effectively. This article equips you with a comprehensive understanding of the situation and empowers you to guide your clients towards sustainable financial management. 

Click here to view the changes as of the 1st April 2024. 

How to understand the changes 

The updated NLW for workers aged 21 and over (currently £11.44 per hour) and the revised NMW rates for younger workers (e.g., £8.60 for 18-20 year olds). For your clients, this is likely to add extra overheads and may impact their future hiring plans. 

  • Quantifying the cost: Analyse the financial impact on your clients' businesses. Calculate the additional wage costs per employee and the overall increase in payroll expenses. Consider offering a wage impact calculator tool on your website or as a downloadable resource for clients. 
  • Industry specificity: Research and understand industry-specific nuances related to the wage increase. For instance, labour-intensive industries like hospitality might feel a more significant impact compared to knowledge-based ones. 

Helping clients manage the costs 

Any price increase for business owners is scary, but for clients worried about the effects of the changes on their business, this is a key opportunity to show your value. 

  • Optimising staffing levels: Work with clients to analyse their staffing needs. Can tasks be redistributed or streamlined to optimise workforce utilisation? Use activity-based costing methods to identify areas where employee time could be more effectively allocated. 
  • Embrace automation: Explore opportunities for automation, particularly in repetitive tasks like data entry, payroll processing, or scheduling – particular ones where you could offer the same service more efficiently. 
  • Update supplier relationships: Review existing supplier contracts to identify areas for cost savings. Negotiate better rates with current vendors or explore alternative suppliers who might offer competitive pricing without compromising quality. 
  • Efficiency audits: Conduct efficiency audits to identify areas where operational workflows can be improved. Streamlining processes can lead to cost savings that offset wage increases. You can also consider offering efficiency audit services as a value-added package for clients. 

Cashflow and Budgeting 

During this period of change, cash management and budgeting will be more important than ever. For clients not on a value-add package currently, this can be an opportunity to demonstrate the tangible value of services like: 

  • Cashflow forecasting: Develop a detailed cashflow forecast factoring in the increased labour costs to help clients anticipate potential shortfalls and plan for proactive measures such as adjusting credit lines or delaying non-essential investments. 
  • Budgetary revision: Update client budgets to reflect the new wage rates. Drill down on accurate financial planning and future cost projections to avoid budget overruns.  
  • Financial modelling: Utilise financial modelling tools to create various scenarios and analyse the impact of the wage increase on profitability. This empowers clients to make informed decisions about resource allocation and pricing strategies. 

What does this mean for hiring? 

For businesses looking at expansion and salary review, these changes could be a game change in terms of available budgets and hiring plans. By providing clear, data-driven models, you can help clients understand their options and make the most of available resources. 

  • Benchmarking salaries: When hiring new staff, use salary benchmarking tools to ensure competitive yet cost-effective compensation packages. Consider offering salary benchmarking reports as a standalone service to clients seeking to attract top talent. 
  • Skills-based recruitment: Prioritise skills and experience when recruiting to ensure new hires add significant value, justifying their wage cost. This could be supported by a skills-gap analysis for your clients to identify areas where employee training or upskilling might be needed to maximise return on investment. 
  • Retention strategies: Employee retention strategies can help mitigate the costs associated with hiring and training new staff. Encourage clients to invest in employee well-being, career development opportunities, and competitive benefits packages. 

Data and control to help your clients adapt 

Bright’s accounting tools give you the functionality and insight to help your clients understand their numbers and make the right decisions. To find out more, book your free demo today.  

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Written by | Bright 

 

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